Hiring Your Children for Tax Breaks: A Smart Strategy for Business Owners
As a financial advisor at Cool Wealth Management in Phoenix, Arizona, I work with business owners looking for legal, tax-efficient ways to build wealth and reduce liability. One often-overlooked strategy is hiring your children. Not only can this move reduce your overall tax burden, but it can also instill strong financial values, provide income-shifting opportunities, and keep more money in the family.
This strategy works especially well for small business owners structured as sole proprietors or partnerships, but it can still be powerful in S Corps and C Corps with the right setup.
Why Hire Your Children?
Tax Savings
If your child is legitimately working for your business, you can deduct their wages as a business expense. This reduces your taxable income. Meanwhile, your child may pay little to no tax on that income due to their standard deduction (as of 2025, it’s $14,600).Income Shifting
Instead of taking all the income yourself and paying taxes at your higher rate, you can shift some income to your child—who is likely in a lower or zero tax bracket. This is one of the few remaining legal income-splitting strategies after changes from the Tax Cuts and Jobs Act.No Payroll Taxes (in Some Cases)
If you operate as a sole proprietor or partnership and hire your children under age 18, you don’t owe Social Security, Medicare, or FUTA taxes on their wages. That’s an immediate 15.3% savings.
What Kind of Work Can They Do?
The key is that the work must be real and age-appropriate. Common tasks include:
Filing and organizing paperwork
Cleaning the office
Managing social media (especially for teenagers)
Data entry
Modeling for marketing photos
Helping at events
Keep records of hours worked, tasks completed, and pay consistent with what you’d pay a non-family member for similar work.
How to Do It Right
The IRS is fine with this strategy—as long as you do it properly. Here's how:
Create a job description
Pay a reasonable wage
Track hours and tasks
Pay them via payroll or check
File the appropriate tax forms
You may also want to open a Roth IRA for your child. Since they now have earned income, you can contribute up to the lesser of their income or the annual Roth IRA limit. This is a great way to start long-term wealth building at an early age.
Considerations for S Corps and C Corps
While you can still hire your children through an S Corp or C Corp, those business types do require payroll taxes regardless of age. You’ll need to run formal payroll and withhold FICA taxes, but the income-shifting and Roth IRA opportunities still make it worthwhile.
Start Building Family Wealth Today
Hiring your children isn’t just about tax breaks—it’s about passing on values, involving your family in your business, and creating long-term financial momentum. If you’re a business owner in Phoenix or the surrounding area, I’d be happy to help you explore whether this strategy is a fit for your situation.
Contact Cool Wealth Management today to learn how we help families grow wealth across generations—with smart, legal strategies that put your money to work.
